Addressing real estate provisions in fiscal cliff bill
By Dave Parrish
On Jan. 1, the Senate and House passed H.R. 8, legislation to avert the fiscal cliff. I bet you thought you had heard the last on the fiscal cliff. You may have even thought you knew what the debate was all about. Maybe not. Here is a summary of real estate-related provisions in the bill.
Real estate tax extenders
Mortgage cancellation relief is extended for one year to Jan. 1, 2014.
Deduction for mortgage insurance premiums for filers making less than $110,000 is extended through 2013 and made retroactive to cover 2012.
Leasehold Improvements: 15-year straight-line cost recovery for qualified leasehold improvements on commercial properties is extended through 2013 and made retroactive to cover 2012.
Energy efficiency tax credit: The 10 percent tax credit (up to $500) for homeowners for energy improvements to existing homes is extended through 2013 and made retroactive to cover 2012.
Permanent repeal of Pease limitations for 99 percent of taxpayers
The Pease limitations reduce the value of itemized deductions are permanently repealed for most taxpayers but will be reinstated for high-income filers. These limitations will only apply to individuals earning more than $250,000 and joint filers earning more than $300,000. These thresholds have been increased and are indexed for inflation and will rise over time. Under the formula, the amount of adjusted gross income above the threshold is multiplied by 3 percent. That amount is then used to reduce the total value of the filer’s itemized deductions. The total amount of reduction cannot exceed 80 percent of the filer’s itemized deductions.
These limits were first enacted in 1990 — named for the Ohio Congressman Don Pease, who came up with the idea — and continued throughout the Clinton years. They were gradually phased out as a result of the 2001 tax cuts and were completely eliminated in 2010-2012. Had we gone over the fiscal cliff, Pease limitations would have been reinstated on all filers starting at $174,450 of adjusted gross income.
The capital gains rate stays at 15 percent for those the top rate of $400,000 individual and $450,000 joint return. After that, any gains above those amounts will be taxed at 20 percent. The 250/500k exclusion for sale of principal residence remains in place.
The first $5 million in individual estates and $10 million for family estates are now exempted from the estate tax. After that the rate will be 40 percent, up from 35 percent. The exemption amounts are indexed for inflation.
May the market be with you.
Source: NAR Issue Brief